stated as to ensure the protection and promotion of flow.
If the purpose of planning is to ensure the protection and promotion of flow, then planning systems should do just that. However, in reality, do conventional planning systems really ensure the protection and promotion of flow in today’s environments? The evidence overwhelmingly suggests that they do not.
Let’s examine this issue from four distinct perspectives:
• The macroeconomic level. Has the proliferation of conventional planning systems driven better return on investment performance for one of the world’s largest economies?
• The user level. Do the people that interact with conventional planning systems believe in those computer systems’ abilities to enable flow?
• The organizational level. Do the companies that use conventional planning systems exhibit the characteristics of good flow performance as evidenced by sustainable ROI?
• The supply chain level. Do supply chains featuring a collection of conventional planning systems exhibit the characteristics of good flow performance?
The Macroeconomic Level
It is no secret that the United States led the adoption of manufacturing information systems starting with MRP in the 1960s. The vast majority of those “700 manufacturing companies or plants that have implemented, or are committed to implementing, MRP systems” were located in the United States. The roots of MRP continued to run deep in the United States through the time in which this book was written; it is simply how planning occurs in most U.S. manufacturing companies of any size and scale. One would think this should provide an incredible advantage for the U.S. economy.
While these systems are expensive to purchase, implement, and maintain, the value of these formal planning systems has always been sold on the basis of the ability to better leverage the assets of a business. So, did the widespread adoption of MRP and its subsequent derivative information systems enable the U.S. economy to better manage assets?
In late 2013 Deloitte University Press released a report written by John Hagel III, John Seely Brown, Tamara Samoylova, and Michael Lui that is quite eye-opening when considered against the progression and adoption rates of information systems.8 Figure 1-6 is a chart from that report depicting the return on asset performance of the U.S. economy since 1965.
The graphic clearly depicts a steady decrease on return on assets for the U.S. economy from 1965 to 2012. But this is not the whole story. During this time period the same report shows that labor productivity (as measured by the Törnqvist aggregation) more than doubled! What is most interesting about this graphic in relation to information systems is that by 1965 we had the modern acronym MRP, but massive proliferation of information systems did not occur until after 1975 and, in particular, after 1980 with MRPII.
U.S. firm’s ROA fell to a quarter of its 1965 levels in 2012. To increacse, or even maintain, asset profitability, firms must find new ways to create value from their assets.
Graphic: Deloitte University Press | DUPress.com Source: Compustat, Deloitte analysis
FIGURE 1-6 Return on asset peformance for the U.S. economy
Obviously, there are many factors at play with this return on asset decrease, but this report would certainly lead one to conclude that the impact of the widespread adoption of MRP, MRP II, and ERP systems (at least in the United States) has not significantly helped companies manage themselves to a better return on asset performance. Indeed, when this decline is taken in combination with the increase in labor productivity, it suggests that companies may be actually accelerating in exactly the wrong direction.
But, admittedly, this is just one point of data; it is a high-level view with many unrelated factors contributing to these effects. What additional evidence do we have that conventional planning approaches are not protecting and promoting the flow that we need to drive better return on investment?
The User Level
Rather than examining the performance of an entire economy over a period of time, let’s examine a much more granular level—the day-today actions of the people charged with making decisions about how to utilize assets: the planners themselves. One hallmark of supply chains is the presence of supply orders. Supply orders are the purchase orders, stock transfer orders, and manufacturing orders that dictate and authorize the flow and activities of any supply chain. They are the signals to produce, buy, and move.
The very purpose of a planning system is to ultimately determine the timing, quantity, and collective synchronization of the supply orders up, down, and across the levels of the network. Inside most manufacturers there are tiers within the planning system where stock transfer orders could prompt manufacturing orders, which in turn could prompt purchase orders. Additionally, within most supply chains there are tiers of different planning systems at each organization linked together by these authorized orders communicating through these supply order signals. For example, purchase orders from a customer can prompt stock transfer or manufacturing orders at suppliers.
Perhaps the biggest indictment of just how inappropriate modern planning rules and tools are can be observed in how frequently people feel compelled to work around them. The typical work-around involves the use of spreadsheets. Data are extracted out of the planning system and put into a spreadsheet. The data are then organized and manipulated within the spreadsheet until a personal comfort level is established. Recommendations and orders are then put back into the planning system, essentially overriding many of the original recommendations from the formal computer system.
Consider polling on this subject by the Demand Driven Institute from 2011 to 2014. With more than 500 companies responding, 95% claim to be augmenting their planning systems with spreadsheets. Nearly 70% claim these spreadsheets are used to a significant or moderate degree. The results of this polling are consistent with other surveys by analyst firms such as Aberdeen Group. This reliance on spreadsheets has often been referred to as “Excel Hell” Validation for this proliferation can be easily provided by simply asking the members of a planning and purchasing team what would happen to their ability to do their job if their access to spreadsheets were taken away.
But why have planners and buyers become so reliant on spreadsheets? Because they know that if they stayed completely within the rules of the formal planning system, approving all recommendations, it would be very career limiting. Tomorrow they would undo or reverse half the things they did today because MRP is constantly and dramatically changing the picture. This phenomenon, known as “nervousness,” is explained in Chapter 3 and was the primary reason for the development of the master production scheduling process in the 1980s.
So instead of blindly following the system, individual planners have developed their own ways of working with tools that they have crafted and honed through their years of experience. These ways of working and spreadsheet tools are highly individualized with extremely limited ability to be transferred between individuals. This is a different, informal, and highly customized set of rules as compared with the formal computer planning system.
Worse yet, there is no oversight or auditing of these side “systems” There is no vice president of spreadsheets in any company. Everyone simply assumes that the people who created these spreadsheets built and maintain them properly.
